Bangladesh economy: What lies ahead?

When the FY25 budget was announced in June 2024, there were already challenges that needed to be addressed. Now, on the onset of the Quota Reform Movement, which began in July, new unprecedented challenges have emerged.

The Business Standard spoke to three prominent economists to know their views.  

If we can't stabilise, inflation will spiral out of control again

Dr Ahsan H Mansur

Executive Director, Policy Research Institute (PRI)

First, banking activities were closed for seven or eight days. At the same time, social media activism is growing about suspending remittance to the country. A movement aimed at teaching the government a kind of lesson will certainly not be sustainable.

The workers must send money to their families in the country. Some money will come via the Hundi network. But, most of it will come through the banking sector.

The economy of Bangladesh is running under the International Monetary Fund (IMF) guidance. Regardless of the advice of the IMF or any organisation, policies are decided based on macroeconomic conditions and the country's political stability.

These student movements were not factored into the IMF's lending policy framework. It's a huge internal shock. The domestic economy has suffered a massive shock.

Along with that, our export orders have decreased. Export orders may be cancelled in the near future. The deficit will increase, and there will be pressure on reserves.

We may see capital flight as businessmen or politicians may invest more in businesses abroad thinking the current situation in the country is not favourable.

So, now we have to take the economic shock into account. The impact may come in the future. Our foreign currency exchange rate had only started to stabilise. As a result, inflation was coming down.

But now, again the rate of foreign currency exchange has been altered. If we can't stabilise it, inflation will spiral out of control again. I am worried about this. The overall economy was gradually stabilising from May, but now, it is in shock.

The Central Bank directed several banks to collect remittances at higher rates to increase the flow of dollars. The exchange rate for remittance in dollars has risen to Tk119.40.

But I think it is better left to the market, the Central Bank should not have intervened. The central exchange rate for everything should be controlled instead of just remittance.

Dr Ahsan H Mansur spoke to TBS' Ariful Hasan Shuvo over the phone.

Restoring normalcy is a pre-condition to understand full extent of the economic impact of the crises

Dr Zahid Hussain 

Former lead economist of the World Bank's Dhaka office

The immediate challenge for our economy is to bring back normalcy. There's a curfew going on, there are BGB, police, and army troops on the streets. The internet has been restored, but the speed is very poor. The raids to arrest protesters are in full swing. The educational institutions are completely shut down. There's a state of fear; this is no normal situation.

We need to restore the normal state of affairs before understanding the full extent of the economic impact of the crises; it is the pre-condition. Without restoring normalcy, we can't even be prepared to meet the economic challenges.

Unless political stability comes back, we will not be able to understand what measures to take to mitigate the deteriorating economic conditions. If your body is bleeding, you need to stop it first. Otherwise, you can neither diagnose nor treat any other issues. The current situation is exactly like that.

The budget, the monetary policy, the financial sector, the energy sector, the business sector — everything needs to be revised given the current state of affairs. There is growing pressure on our budget.

Moreover, the BGMEA has asked for a Tk5,000 crore loan at a concessional interest rate. The ready-made garment owners are already expressing doubt about whether they can pay their employees on time.

There will be more loans, subsidies and interest rate curbing demands from other pressure groups. Everyday, you will see new demands.

Today it's the BGMEA, tomorrow it may be the BKMEA or BASIS. Everyone can claim that they have been badly affected by the recent crisis, which they did.

That upcoming fiscal pressure will be immense, we don't know yet how intense the pressure will be. All we know is that there will be significant pressure. The government needs to be prepared for handling it.

Moreover, there will be an adverse impact on revenue collection and remittance. The ports are unable to handle the goods, and they are losing profit everyday. So, the revenue collection target fixed in the budget will have to be revisited.

And the situation that has been exacerbating the crisis is still ongoing. That is why we must let things calm down. We then need to assess how much loss we have incurred and how bad the damages are. We also need to find out what policy measures to take to counter the losses; we are not at that stage yet.

We are still in a fluid situation, it is changing everyday. That is why return to normalcy is the precondition to figure out what challenges lie ahead and how to deal with them.

Dr Zahid Hussain spoke to TBS' Shadique Mahbub Islam over the phone.

Strong economic leadership is needed to address these challenges

Dr Selim Raihan

Executive Director, South Asian Network on Economic Modelling (SANEM)

The macroeconomic indicators like foreign reserve, inflation, export, remittance, etc were already not performing well. Against this backdrop, the current situation provides risks of these indicators' deterioration instead of improvement. 

What the recent incidents will do is create a drop in the confidence level— in foreign investment, law and order situation, and political stability. The question is, how are foreign investors seeing it? We have seen that Bangladesh's credit rating has already been downgraded.

Political instability is a significant concern as it may hike the inflation rate further.

The countrywide communication has been badly affected. Even after the end of the internet blackout, everything hasn't yet returned to normalcy. Railway communication is off. Also, people are afraid of going out. This situation has significantly harmed the tourism sector.

We already had doubts that the government was addressing the economic problems in the right way. Now in this critical situation, a major concern is how much priority economic issues will receive. 

Strong economic leadership is needed to address these challenges. However, such leadership has not been previously demonstrated by the Ministry of Finance or other relevant government divisions. In fact, we have not heard anything from the Ministry of Finance about how they are planning to tackle this critical situation.

I think this is extremely important– we need visibility and leadership.

Dr Selim Raihan spoke to TBS' Ariful Hasan Shuvo over the phone.